Good morning from New Economy Brief.
How sustainable are the public finances? This question shapes our political debate in so many ways, and yet there is precious little data that can help us understand the reality, leading to some quite blunt statistics (such as gross debt and deficit numbers) dominating our fiscal debate.
In fiscal policy, as with many other areas of economics, what matters is what is measured, and, therefore, what is measured really matters. That’s why the decision to add a new public finance measurement, Public Sector Net Worth, is worthy of deeper exploration.
In this week’s New Economy Brief we explain what this measure is, what it tells us about the UK’s public finances, and how it could be used in the future.
Public Sector Net Worth. Last week the Office for National Statistics (ONS) began measuring Public Sector Net Worth (PSNW) for the first time. This is a broader measure of the state of the UK’s public finances, as it calculates the value of the total assets a government owns, minus its liabilities. Assets include physical assets owned by the state, such as schools, hospitals, roads and other infrastructure, and financial assets such as student loans. Grant Fitzner, the ONS’s Chief Economist, explained that the new PSNW measure “provides a fuller picture of long-term fiscal sustainability and captures the impact of a wider range of government activities”.
The value of the UK’s public sector: -£605.8bn. The ONS calculated the UK’s Public Sector Net Worth to be in a deficit of £605.8bn. The Resolution Foundation’s analysis notes that the value of the public sector has declined from -£530bn last year, continuing "a long-term trend of decline in net worth, which has fallen substantially from the surpluses recorded by the ONS pre-financial crisis” and shows that “the country is failing to invest in its future”.
What could this enable politically? The primary practical application of PSNW is in its interaction with fiscal rules. Targets based on PSNW rather than debt or deficits could reduce the temptation for the Treasury to cut investment and engage in fire sales of public assets in times of economic downturn. Labour is planning to adopt a PSNW approach to fiscal policy, while stopping short of committing to a new fiscal rule. They argue that a focus on debt has led to “a short-termist mismanagement of the public finances under the Conservatives”, reports Bloomberg’s Philip Aldrick, where “privatizations and asset sales may reduce the debt but have left the government with one of the largest net worth deficits of all OECD members…Labour hopes a full balance sheet rule might also reframe the debate around its plans to borrow to invest in green infrastructure.”
Centre for Democratising Work. Common Wealth has launched the Centre for Democratising Work: “a hub for exploring the nature of work and how we can secure its reimagination”. The Centre is the “UK hub of the global Democratise Work movement” and promises to connect activists, academics and movements around central themes of “democratisation, decommodification and decarbonisation”. The first interview published by the hub explores class in the twenty-first century with University of Chicago historian Gabriel Winant.
“Stop fetishising fiscal discipline”. In a letter to the Financial Times, senior economists from the New Economics Foundation, the European Trade Union Confederation and Social Platform have warned against austerity saying that the policy has been “counterproductive on its own terms” and has “damaged democracy”. The letter was published in response to an opinion piece by German Finance Minister Christian Lindner arguing that EU governments needed stronger “fiscal rules”.
IPPR Commission on Health Prosperity. The UK is getting poorer and sicker, according to the first interim report of the IPPR’s Commission on Health and Prosperity. The report links health outcomes to the UK’s poor economic outlook, arguing that policy makers should better account for the impacts of poor health on “deep-rooted economic challenges”.
Public opinion on public services. 93% of people across the political spectrum support the NHS being funded by tax with 84% agreeing that it should be a universal service, according to new polling insights from Neon. The research also found that 75% of the public think that public services have deteriorated and that over half of people agree that public services need more funding and will pay higher taxes for them.
Profit-price spiral. An influential academic paper on inflation is now open access. The paper by Isabella Weber and Evan Wasner argues that, contrary to the “dominant view of inflation”, the inflation seen following the Covid-19 pandemic in the US “is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices”. The paper explores why firms are particularly successful at hiking prices in an emergency such as a pandemic.
We’re “all worse off”? Huw Pill’s claim that we are “all worse off” seems unlikely given that the “super rich are richer than ever” and that the number of billionaires in the UK is 20% higher than since the start of the pandemic, argues economist James Meadway. “Corporate profiteering is driving up prices”, he argues.
A “third way” of urban development? “The development of the current Social Value Index and its application to Wards Corner in Tottenham demonstrates that there are significant social and economic benefits to the real-world application of a Public-Commons Partnership (PCP) model”, argues a new report by Common Wealth. The PCP model is described as an “alternative to the public-private partnership model that dominants present-day urban development, and which is typically designed around extractive forms of ownership.”